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Is There Anything To Be Read Into Ford’s Decision To Dump Fidelity Contrafund From Its 401(k)?

Summary Ford announced last week that it’s dropping Fidelity Contrafund from its 401(k) plan lineup. Fidelity Contrafund has about $113B in total assets. $900M of that comes from the Ford retirement plan. While Fidelity Contrafund is going, the Fidelity Growth Company fund is staying as a plan option. Contrafund’s track record under manager Will Danoff coupled with its low expenses and risk make it a curious choice to be dropped from a retirement plan. It’s not often that the relatively mundane topic of 401(k) investment options makes it into the news but we had one of those instances last week when Ford (NYSE: F ) announced that it was dumping the ultra-popular Fidelity Contrafund (MUTF: FCNTX ) from its 401(k) lineup. Given the fund’s popularity and performance, it seems to be a bit of a curious move. When it comes down to swapping out investment choices in a retirement plan it’s usually due to one of three reasons – below average performance, above average cost or management changes. But looking at Contrafund none of those factors seems to be a reason. Will Danoff has been managing the fund for the past 25 years (as well as a handful of other smaller Fidelity funds during parts of that time frame but Contrafund is clearly the big dog) and his performance record over the course of the last two and a half decades has been nothing short of stellar. Contrafund is currently beating the S&P 500 during the past 1-year, 3-year, 5-year, 10-year and 15-year time frames in addition to doubling the index’s performance year to date. Seems like the type of performance and track record you’d want available in a retirement plan. From a cost standpoint, the current expense ratio doesn’t appear to be a big issue either. The fund’s current net expense ratio of 0.64% compares favorably to other funds in its category and, in fact, has been dropping annually over the last several years. Looking at risk levels , the fund’s beta is currently less than 1 indicating below average risk and according to Morningstar’s own risk rating categorizes, the fund’s risk is either “below average” or “low” depending on the time frame considered. It just doesn’t seem that there are any glaring red flags with this fund. Mainstay Capital, which administers the Ford 401(k) program, states on its website that it simply is ” removing one of the funds” from the plan without naming which one specifically (although it does link to an article explaining that Contrafund is the one being axed). For its part, Ford has said simply that it makes changes “from time to time.” While Contrafund is going, its counterpart, the Fidelity Growth Company (MUTF: FGCKX ) fund, is staying although to be fair, its performance is similarly strong like Contrafund. Contrafund is a $113B behemoth so the estimated $900M outflow the fund will experience thanks to Ford’s withdrawal shouldn’t affect management of the fund in any type of meaningful way. Conclusion It’s a bit odd to think that Ford would drop a fund as popular and well performing as Contrafund but that’s what’s happening. Perhaps the powers that be at Ford feel that Contrafund and Growth Company have overlapping management styles and objectives and are eliminating one as a cost savings measure (Ford has announced that Contrafund won’t be replaced). In that case, Contrafund’s dismissal makes some sense. With other Fidelity funds remaining, one would have to assume there isn’t any type of relationship issue between Ford and Fidelity. My conclusion is that there isn’t really anything to read into this decision. Although this plan change happens to feature one of the biggest and best-known names in the mutual fund world, it appears that more than likely this is simply just part of the normal course of business for Ford. Disclosure: I am/we are long F. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Foreign Funds To Buy On Worst U.S. Funds Outflow Since ’93

Domestic equity-focused funds are facing a tougher time in terms of fund outflows than what they experienced during the financial crisis. According to Morningstar data, US-focused mutual funds and exchange traded funds have seen $78.8 billion worth of outflows in the first seven months of 2015. This is higher than any full-year outflows since 1993. Continued transfers from open-end mutual funds to collective investment trusts at Fidelity triggered much of the outflows. In contrast, investors have poured $179.2 billion in these seven months into funds focused on international equities. This is close to the full-year peak of $201.6 billion recorded in 2013. In response to this outflow, we will pick 3 top-ranked funds for investors interested in foreign mutual funds. Before doing so, let’s look into some other details. US versus International Markets International markets have attracted investors backed by the improving conditions. Greece debt negotiations had been a concern through most of 2015’s first half, but Europe as an investment destination had other attractions. The monetary stimulus plan, for example. China had a great bull bun before it hit a rough patch in June, though. Japan too has been profitable, and the country’s equity funds notched the best gains in first half of 2015. As of July 31, the Standard & Poor’s 500 (.INX) returned 2.2%. In contrast, MSCI EAFE Index had returned 6.5%. Morningstar notes that the consensus opined that the US is in late stages of bull market. Foreign country stocks are said to be cheaper on a fundamental level. Investors are aware of the US and Europe’s “different points in the economic cycle”, which is being revealed in the flows. The fund outflows in 2015 so far has been worse than that of the recession years. Since 2007, the US has witnessed outflows 6 times (including YTD 2015). International equity funds have witnessed outflows only once in 2008. Active versus Passive Fund Flow Inflows into passive funds failed to offset the outflows from the active US equity funds. In July alone, estimated net outflows from US equity funds in July increased to $14.3 billion from $8 billion in June. The active funds saw outflows of over $20 billion in July, while inflows of over $6 billion were recorded on the passive side. Over the last 1-year period, over $158 billion flowed out of active funds, while the passive funds added over $140 billion. Meanwhile, international equity funds saw inflows on both active and passive sides. Active and passive funds added over $3 billion and $18 billion, respectively. Category and Fund Family Performance The foreign large blend category has emerged as the best one. Inflows to this category were higher than those to the other top four categories, says Morningstar. Assets of foreign large blend funds are concentrated in Europe. Along with this, European stock also featured in the top 5 list. So, Europe did prove to be a favorable investment decision in July. As for the laggards, Large Growth , Large Value and Large Blend were the worst losers. These are almost all the representative categories of the US markets. Coming to the fund families, only 3 out of the 10 fund families under the study witnessed inflows on the active side in July. These are american funds SPDR State Street Global Advisors and J.P. Morgan. Meanwhile, Fidelity Investments witnessed the biggest outflows on the active side for both July and the last 1-year period. Again, much of Fidelity’s outflows indicated continued transfers from mutual funds to collective investment trusts. Fidelity witnessed outflows of over $10 billion in July and close to $19 billion over the last 1-year period. Fidelity Contrafund Fund No Load (MUTF: FCNTX ), Fidelity Growth Company Fund No Load (MUTF: FDGRX ) and Fidelity Low-Priced Stock Fund No Load (MUTF: FLPSX ) accounted for outflows of $2.36 billion, $2.1 billion and $1.46 billion in July. Franklin Templeton Investments was also a big loser for both periods, while Vanguard and T. Rowe Price witnessed outflows in July against inflows over the last 1-year period. If we look into 5 of the bottom-flowing active funds, 3 of them are from Fidelity. 3 Non-US Mutual Funds to Buy Morningstar notes that the fund flows indicate investors’ expectations for the future. So, investors looking to buy non-US Equity mutual funds should consider the following funds that either carry a Zacks Mutual Fund Rank #1 or Zacks Mutual Fund Rank #2. Matthews Japan Fund Investor (MUTF: MJFOX ) invests most of its assets in preferred and common stocks of firms located in Japan. The fund may invest in companies of all sizes, but the adviser expects them to be mid- to large-cap firms. MJFOX carries a Zacks Mutual Fund Rank #2. MJFOX has returned 22.9% so far this year, and its one-year return stands at 15.3%. The 3- and 5-year annualized returns are 18.1% and 14%, respectively. The fund carries an annual expense ratio of 1.03%, lower than the category average of 1.43%. MJFOX carries no sales load. Cambiar International Equity Fund Investor (MUTF: CAMIX ) invests a large chunk of its assets in equity securities of medium- to large-cap non-US companies. For greater liquidity and lesser custodial expenses, CAMIX buys American Depositary Receipt listings of foreign firms on the US exchanges instead of buying them on foreign exchanges. CAMIX carries a Zacks Mutual Fund Rank #1. It has returned 12.5% so far this year and its one-year return stands at 7.6%. The 3- and 5-year annualized returns are 12.1% and 10.3%, respectively. CAMIX carries an annual expense ratio of 1.09%, lower than the category average of 1.17%. The fund carries no sales load. Fidelity Overseas Fund No Load (MUTF: FOSFX ) seeks long-term capital growth. It invests a large portion of its assets in non-US securities. Management considers the size of the market in each country and region relative to the size of the world market as a whole. FOSFX invests primarily in common stocks. The fund offers dividends and capital gains annually in December. The Fidelity Overseas fund has returned 4.9% and 8.6% over the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 16.7% and 16.3%. FOSFX, managed by Fidelity, carries an expense ratio of 1.04% as compared to a category average of 1.17%. FOSFX carries no sales load. Original Post

Knowing How Much China Is In Your ETF

The reaction could easily be ‘what else is new’ as U.S. market participants awoke to news of another big decline in China. There are over 260 ETFs that feature some exposure to Chinese stocks. Something else to consider is exactly what Chinese stocks are held by these ETFs. By Todd Shriber , ETF Professor The reaction could easily be “what else is new” or “it is just another day at the office” as U.S. market participants awoke to news of another big decline in China. To this point in Tuesday’s session, the six worst-performing exchange traded funds in terms of percentage losses are all China funds, reminding investors in diversified emerging markets funds that knowing exactly how much China exposure such a fund features is crucial information. There are over 260 ETFs that feature some exposure to Chinese stocks. Of course that number includes the most familiar diversified emerging markets ETFs, such as the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) . VWO and EEM are the two largest emerging markets ETFs by assets. China is VWO’s largest country weight at 27.1 percent, well above the 13.9 percent the ETF devoted to Taiwan at the end of July, according to Vanguard data . EEM’s China weight is 24.3 percent, or more than 1,000 basis points larger than South Korea, the fund’s second-largest country weight. “Since iShares and Vanguard track indices from different providers, their exposure is tied to what that provider considers a developed or an emerging market. Since 2009, FTSE has classified South Korea as a developed market, based in part of the country’s relatively strong economic position. Meanwhile, in 2014 MSCI removed South Korea from its list of countries under review for reclassification to a developed market from an emerging market,” said S&P Capital IQ in a recent note. iShares Core MSCI Emerging Markets ETF ( IEMG) IEMG, which debuted three years ago as part of the iShares core lineup aimed at cost-conscious investors, also sports a significant weight to Chinese stocks. IEMG, which charges 0.18 percent per and has $7 billion in assets under management, has a China allocation of 23 percent, more than 800 basis points in excess of its South Korea weight . Something else to consider is exactly what Chinese stocks are held by these ETFs. For example, VWO’s index provider, FTSE Russell, recently said it will allow China A-shares into its international benchmarks. MSCI, the index provider for EEM and IEMG, is still considering elevating A-shares to its well-known international benchmarks. “In June, Vanguard announced that it will soon begin transitioning to a new FTSE index that will ultimately scale up to a 5.6% weighing in China A-shares that would be separate from the existing 28% stake in China H shares. China-A tend to be issued more by local companies and the shares are only available to qualified foreign investors through regulated systems. In late 2014, China began providing additional yet limited access to this market though there are quotas and regulatory approval for asset managers. As of mid-August, Vanguard has not announced when it would begin gradually adding in A-shares,” said S&P Capital IQ. A-shares are the stocks trading on China’s mainland and where primary drivers of the equity market rally there earlier this year. Mainland Chinese equities have also been significant drivers of recent downside in Chinese shares. The six China ETFs with the worst percentage losses on Tuesday are all A-shares funds. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.